FRIDAY, SEPTEMBER 3, 2021

BLOGS/OP-EDS

An Argument Against the $15 Minimum Wage (Michael Strain, Journal of Policy Analysis And Management
Michael Strain makes the case against increasing the federal minimum wage to $15 per hour, “…One common goal is to increase the incomes of the working poor. Another common goal is to increase the incomes of, say, the bottom half or the bottom two-thirds of the income distribution I oppose a $15 per hour federal minimum wage to achieve the first goal because there are better policies to boost the incomes of the working poor. The earned income tax credit (EITC) is a better-targeted, more effective anti-poverty policy than the minimum wage and it avoids the harmful effects of large minimum wage increases. The EITC lifts millions of households — and several million children — out of poverty each year. Unlike the minimum wage, it does not come with the cost of reducing low-wage employment. Indeed, it increases employment…The EITC is also preferable because it uses social resources to meet the worthy social goal of attempting to ensure that no one who heads a household and works full time lives in poverty. The implicit logic of the minimum wage is that the burden for meeting this goal should rest with the businesses that employ low-wage workers and the customers who frequent those businesses. This lets too much of society off the hook. By redistributing income, the EITC ensures that resources from all of society are used to raise the incomes of the working poor. And I oppose a $15 per hour federal minimum wage to achieve the second goal because too large a share of the benefits of the minimum wage would be diffuse throughout the middle class, while the costs would be concentrated on the nation’s least skilled, least experienced, most vulnerable workers. If the goal is to boost middle class incomes, then there are better ways to do so that do not require an employment reduction of over one million low-wage jobs or consumer price increases that are borne disproportionately by lower-income households. More fundamentally, society’s obligation to expand economic opportunity to low-income households surpasses any obligation it may have to increase middle-class incomes….”

Green National Accounting (William Nordhaus, Project Syndicate) ($)
William Nordhaus makes the case that standard economic accounting doesn’t capture negative externalities such as greenhouse gas emissions and pollution, once accounted for, US environmental regulations are net positive in terms of growth, “….From a conceptual vantage point, the starting point is NNP. In developing an estimate, we can calculate both a level correction and a growth correction, with the level correction adding or subtracting the estimates of the negative externalities or other omissions from NNP. If these externalities are growing, this will reduce the green growth rate, whereas if they are shrinking, the green growth rate will increase. Let us now turn to some actual cases. The first example is the impact of the climate-change externality, particularly CO2. This is so simple to calculate that anyone can do it on a spreadsheet. The idea is to obtain estimates of the quantity and the price and then correct the accounts for the total. You would begin with a measure of GHG emissions (in this case, CO2) and then multiply the quantity by the price of emissions, as determined by the US government’s estimate of the “social cost of carbon.” n 2018, the United States emitted 5.3 billion tons of CO2 at an estimated social cost of $44 per ton, meaning that $233.2 billion would be subtracted from the $15.9 trillion of output that year – a level correction of 1.5%. But now we need to look at the growth effect. As the table shows, US climate-corrected NNP actually grew between 1973 and 2018, reflecting the fact that emissions declined by 2.2% per year relative to output. Green NNP rose faster than conventional NNP. The negative growth effect is counterintuitive until we realize that it arises because CO2 emissions declined, making their effect on green output larger at the beginning than at the end. Thus, correcting for CO2 emissions lowers the level estimate of output but raises the growth rate of output by a tiny amount….Here, then, is the summary of green national output: When we include impact estimates for resources and the environment that are currently excluded from the conventional national accounts, the difference in terms of the level of output can be substantial. A rough estimate is that including the impact of excluded sectors such as those reviewed here would subtract on the order of 10% of output from the US; but, because the research is incomplete, the total might be larger. Correcting this omission, however, will tend to raise the growth rate of green output, at least for the US over the last half-century. The reason is that most measures of pollution have been declining relative to the overall economy – the result of cleaner power plants, factories, and automobiles. It is the growth of pollution relative to other goods and services that affects the growth rate. The growth effect in the sectors examined to date is on the order of +1.5 percentage points per year – a substantial number that would add up considerably over the years. True, major sectors are missing from the estimates. But, while approximate, these numbers do cover some of the most important externalities. The finding that US environmental policies are adding to genuine economic growth is important for debates about environmental policy….”

What is Going On in China? (Matt Klein, The Overshoot) ($)
Matt Klein on Xi’s “Common Prosperity” and the prospects of rebalancing, “…After almost 9 years, Xi has amassed more power than any Chinese leader since Mao. The question is what he plans to do with it. The recent focus on “common prosperity”—in conjunction with the crackdown on private businesses and entrepreneurs—can be interpreted in two distinct ways. One possibility is that Xi and his colleagues have judged that the “correlation of forces” within China has changed, and that the Party no longer needs to tolerate any traces of indepedendence in the economy and business. From this perspective, the stated concerns with inequality are merely a means to an end….there haven’t yet been any government proposals to change China’s extremely regressive tax system, much less any of the other underlying sources of income disparity within China….Recall how long-time China watcher Richard McGregor explained the Party’s thinking…The real issue for the Party was the threat that the foreign and local private sector might become a political rival…But that was then. Perhaps China’s leaders have concluded that they can come to a new settlement with the troublesome private sector because the world has changed. If that’s the case, we should be skeptical about China’s growth trajectory going forward. While the Chinese party-state has always played a large role in the economy, most of the country’s productivity and employment gains have come from private businesses and entrepreneurs. Stamping that out would leave the country stuck at an average income level comparable to Mexico. The other option is that Xi is still on track to do what the optimists are hoping for…China’s top leaders have known that the country needs to reform its economy and social system since at least 2007. But they have been blocked by the “vested interests,” as Premier Li Keqiang has called them, who benefit from the status quo. Reform will therefore require an authoritarian to crush that opposition before moving forward on the socioeconomic agenda. Xi Jinping is that man….The problem is that the Chinese government has proven much more successful at suppressing borrowing and investment than it has been at raising household incomes and spending. That’s ultimately bad for living standards and growth compared to the alternative of rebalancing incomes to ordinary workers and consumers….That unbalanced recovery wasn’t a coincidence, but a reflection of the social and political context in China: a threadbare safety net for workers and consumers alongside ample state support for favored businesses and local governments. Rectifying that imbalance is the bullish promise—and the challenge—of “common prosperity”. The two big questions are: does Xi want to pull that off, and if so, can he succeed where his predecessors have failed?…”

Real House Prices, Price-to-Rent Ratio and Price-to-Median Income in June (Bill McBride, Calculated Risk)
Bill McBride notes that by all measures house prices appear elevated, “…It has been over fifteen years since the bubble peak. In the Case-Shiller release Tuesday, the seasonally adjusted National Index (SA), was reported as being 40% above the bubble peak in 2006. However, in real terms, the National index (SA) is about 7% above the bubble peak (and historically there has been an upward slope to real house prices).  The composite 20, in real terms, is still 1% below the bubble peak….Here is a similar graph using the Case-Shiller National and Composite 20 House Price Indexes. This graph shows the price to rent ratio (January 2000 = 1.0). The price-to-rent ratio had been moving more sideways, but picked up significantly recently. On a price-to-rent basis, the Case-Shiller National index is back to August 2005 levels, and the Composite 20 index is back to January 2005 levels…This graph uses the year end Case-Shiller house price index – and the nominal median household income through 2019 (from the Census Bureau).  2020 and 2021 median income is estimated at a 5% annual gain…By all of these measures, house prices appear elevated…”

Inflation may be falling, not accelerating (Martin Sandbu, Financial Times) ($)
Martin Sandbu makes the case that it’s still a deflationary world “…I think we may be seeing such disinflationary productivity effects already in play. In my FT column this week, I argued that we should welcome the labour shortages we are seeing as harbingers of a productivity boom. A case in point: my colleague Taylor Nicole Rogers’ story on how US retailers are using QR codes to automate work previously done by shop assistants. As the chart below shows, OECD forecasts show labour productivity accelerating in virtually all the biggest high-income economies in the three years spanning the whole pandemic (both the collapse and the rebound) compared with the three years preceding it If this is borne out, it should help keep inflation at bay and bring better-paid jobs in the bargain. These are early days and that hope could prove unrealistic. But to balance out the doom-mongering, let us not ignore the very pleasant surprises the post-pandemic recovery is presenting us with….” 

NEWS

U.S. Hiring Slows Sharply Amid Delta, Complicating Fed Taper (Reade Pickert + Olivia Rockeman, Bloomberg) ($)
“…U.S. hiring downshifted abruptly in August with the smallest jobs gain in seven months, complicating a potential decision by the Federal Reserve to begin scaling back monetary support by year end. Nonfarm payrolls increased 235,000 last month, trailing all forecasts, after an upwardly revised 1.05 million gain in July, a Labor Department report showed Friday. Employment in leisure and hospitality, which has posted strong gains recently, was flat amid the spreading delta variant and persistent hiring challenges….Payrolls at professional and business services, transportation and warehousing, and manufacturing all increased last month. Factory employment climbed 37,000 in August, reflecting a sizable boost at motor vehicle plants. U.S. payrolls are still 5.3 million below their pre-pandemic level. Meantime, the participation rate — the share of Americans who are employed or looking for work — was unchanged last month at 61.7% and remains restrained by persistent child-care challenges and virus concerns….Overall average hourly earnings rose 0.6% last month, twice as much as forecast though possibly a reflection of the composition of August employment. Average weekly hours were unchanged at 34.7 in August….The unemployment rate fell for every major demographic group except Black Americans, which saw a pickup to 8.8%. That’s partly a reflection of increased labor force participation. For women age 25 to 54, the participation rate edged down….”

Walmart to Raise Minimum Wage to $12 an Hour (Sarah Nassauer, Wall Street Journal) ($)
“…Walmart Inc. will increase its minimum wage to $12 an hour and raise pay for hundreds of thousands of its U.S. store workers as a tight labor market continues to create fierce competition for staff. Walmart said Thursday it will give raises to more than 565,000 of its 1.6 million U.S. workers, targeting those who work at registers, in the food and household goods areas and who restock shelves. Those workers will receive at least a $1-an-hour raise starting Sept. 25, the company said in a memo to staff, bringing Walmart’s overall average wage to $16.40 per hour for hourly workers….The change will raise Walmart’s starting pay from the $11-an -hour floor Walmart established in 2018, a spokeswoman said. It is still below the $15-an-hour starting pay at rivals such as Target Corp and Amazon.com Inc….Earlier this week Walmart said it aims to hire 20,000 more warehouse and supply chain workers permanently. The company has also offered special bonus and pay increases to some warehouse workers to keep staff on the job and gave wage increases earlier this year to hourly workers focused on stocking shelves and online sales. Last year the retailer gave wage increases to some managers. Competitors such as Amazon, Target and Costco Wholesale Corp. have also raised wages over the past year. Amazon also said this week it was seeking to hire about 55,000 people globally among its corporate and technology ranks during a recruiting event set for Sept. 15….”

China to Ban Celebrities With ‘Incorrect’ Politics, Limit Pay (Staff, Bloomberg) ($)
“…President Xi Jinping ordered sweeping action to clean up the entertainment industry, with the broadcast regulator moving to ban film stars with “incorrect” politics, cap salaries and rein in celebrity fan culture….The article also warned that “the cultural market will no longer be a paradise for sissy stars, and news and public opinion will no longer be in a position worshiping Western culture.” The regulator’s statement Thursday also ordered an end to “sissy and other distorted aesthetics.” Reining in the entertainment industry, along with after-school tutoring and online gaming, are part of a cumulative effort to ensure the younger generation — some of whom are starting to embrace a minimalist lifestyle known as “lying flat” — become motivated, patriotic and productive workers….”

NEW ECON RESEARCH

The Effects of Increased Funding for the IRS (Phill Swagel, Congressional Budget Office)
“…CBO has completed its analysis of another proposal in the President’s budget, an increase in spending for the Internal Revenue Service’s (IRS’s) enforcement activities. CBO estimates that portions of the Administration’s proposal to increase funding for the IRS by $80 billion over the 2022–2031 period would increase revenues by approximately $200 billion over those 10 years. That estimate does not include changes in revenues resulting from portions of the proposal that involve new information-reporting requirements and other changes to the tax code; those changes are estimated by the staff of the Joint Committee on Taxation (JCT)…”

NEW SCIENCE

The pandemic’s true death toll (Staff, The Economist) ($)
“…Rather than trying to distinguish between types of deaths, The Economist’s approach is to count all of them. The standard method of tracking changes in total mortality is “excess deaths”. This number is the gap between how many people died in a given region during a given time period, regardless of cause, and how many deaths would have been expected if a particular circumstance (such as a natural disaster or disease outbreak) had not occurred. Although the official number of deaths caused by covid-19 is now 4.5m, our single best estimate is that the actual toll is 15.2m people. We find that there is a 95% chance that the true value lies between 9.3m and 18.1m additional deaths…”

How Computationally Complex Is a Single Neuron? (Allison Whitten, Quanta Magazine)
“… David Beniaguev, Idan Segev and Michael London, all at the Hebrew University of Jerusalem, trained an artificial deep neural network to mimic the computations of a simulated biological neuron. They showed that a deep neural network requires between five and eight layers of interconnected “neurons” to represent the complexity of one single biological neuron. Even the authors did not anticipate such complexity. “I thought it would be simpler and smaller,” said Beniaguev. He expected that three or four layers would be enough to capture the computations performed within the cell. Timothy Lillicrap, who designs decision-making algorithms at the Google-owned AI company DeepMind, said the new result suggests that it might be necessary to rethink the old tradition of loosely comparing a neuron in the brain to a neuron in the context of machine learning. “This paper really helps force the issue of thinking about that more carefully and grappling with to what extent you can make those analogies,” he said. The most basic analogy between artificial and real neurons involves how they handle incoming information. Both kinds of neurons receive incoming signals and, based on that information, decide whether to send their own signal to other neurons. While artificial neurons rely on a simple calculation to make this decision, decades of research have shown that the process is far more complicated in biological neurons. Computational neuroscientists use an input-output function to model the relationship between the inputs received by a biological neuron’s long treelike branches, called dendrites, and the neuron’s decision to send out a signal. This function is what the authors of the new work taught an artificial deep neural network to imitate in order to determine its complexity. They started by creating a massive simulation of the input-output function of a type of neuron with distinct trees of dendritic branches at its top and bottom, known as a pyramidal neuron, from a rat’s cortex. Then they fed the simulation into a deep neural network that had up to 256 artificial neurons in each layer. They continued increasing the number of layers until they achieved 99% accuracy at the millisecond level between the input and output of the simulated neuron. The deep neural network successfully predicted the behavior of the neuron’s input-output function with at least five — but no more than eight — artificial layers. In most of the networks, that equated to about 1,000 artificial neurons for just one biological neuron….The authors also hope that their result will change the present state-of-the-art deep network architecture in AI. “We call for the replacement of the deep network technology to make it closer to how the brain works by replacing each simple unit in the deep network today with a unit that represents a neuron, which is already — on its own — deep,” said Segev. In this replacement scenario, AI researchers and engineers could plug in a five-layer deep network as a “mini network” to replace every artificial neuron….”

IN OUR AIRPODS

Tooze and Klein on China’s Economic History and Future (Jordan Schneider, China Talk)

HAVE A GREAT LABOR DAY WEEKEND!

THURSDAY, SEPTEMBER 2, 2021

BLOGS/OP-EDS

Innovation is important, even more than you think (James Pethokoukis, American Enterprise Institute)
A good reminder of the importance of consumer surplus from AEI’s James Pethokoukis, “….In his paper “Schumpeterian Profits in the American Economy: Theory and Measurement,” Nobel laureate economist William Nordhaus takes a stab at determining who really gains from the value generated by innovation. His findings: “We conclude that only a minuscule fraction  [2.2%] of the social returns from technological advances over the 1948-2001 period was captured by producers.”…As sketched out by the Amazon founder, the retailer created $300 billion of total value in 2020, with just 7 percent of that going to shareholders. And since Bezos owns less than 10 percent of the shares, the value going to the Amazon founder last year works out to about $2 billion, or less than 1 percent of total value created….”

The World Is Awash in Dollar Liquidity That No One Wants (Tracy Alloway, Odd Lots)
Tracy Alloway on a sea change in money markets, “…For years, the premium paid for dollars over the euro, Japanese yen and so on in the cross-currency markets has been negative, indicating rampant demand for greenbacks. Now, these so-called cross-currency basis swaps are on the verge of turning positive in a major shift for money markets. “Things that haven’t happened before are now happening,” says Credit Suisse AG strategist Zoltan Pozsar, in an upcoming episode of Odd Lots. He points out that cross-currency basis swaps are “something that we are used to as being very negative. There’s always an excess demand for dollars, and that excess demand for dollars is gone.” Extraordinary measures from central banks, including the massive provision of liquidity from the Federal Reserve in the form of dollar swap lines and new repo facilities, mean the financial system is essentially swimming in cash. It’s the reversal of an earlier dollar crunch which saw the U.S. central bank withdrawing dollar liquidity from the market in 2015, just as the Bank of Japan and the European Central Bank were ramping up their own quantitative easing programs….Liquidity measures from the Fed have combined to push a number of short-term rates lower. In particular, the spread between Libor and OIS (overnight index swaps) — a measure of dollar funding costs for banks — is close to going negative. That would be a reversal of the dramatic spikes experienced during 2008, when turmoil in the repo market and fears over counterparty contagion drove the gauge to a record high…”

How to Deal With Above-Target Inflation: Raise the Target (Greg Ip, Wall Street Journal) ($)
Greg Ip makes the case for raising the Fed’s inflation target, “…With inflation currently 5.3% based on the consumer-price index, or 4.2% using the Fed’s preferred index, that obstacle may soon be moot. To be sure, most economists agree with Mr. Powell that inflation has jumped only temporarily and will fall to just above 2% in a year. Yet derivatives markets last month assigned a 40% probability to inflation averaging more than 3% over the next five years, according to the Minneapolis Fed….But if late next year inflation looks stuck at 3% or higher, a higher target will look a lot more appealing. Mr. Wilcox says the huge economic benefits that he and Mr. Reifschneider project from going from 2% to 3% inflation are roughly equivalent to the costs the U.S. would endure from doing the opposite….”

A hot labor market won’t eliminate racial and ethnic unemployment gaps (Stephanie Aaronson et al., Brookings Institution)
Stephanie Aaronson, Mitchell Barnes, and Wendy Edelberg argue that tight labor markets likely won’t change structural employment gaps,“….Our work shows that while strong labor markets are associated with significant reductions in racial and ethnic disparities in unemployment rates, by itself a strong labor market is highly unlikely to eliminate the racial and ethnic unemployment rate gaps that have been remarkably persistent over the decades….For this work we count as hot periods times when the aggregate unemployment rate is below the non-cyclical rate (a negative gap) and as cold those periods when the unemployment rate exceeds the non-cyclical rate (a positive gap). Using that framework, we estimate how sensitive the Black and Hispanic unemployment gaps have been to the state of the aggregate labor market within business cycles since 1980. Figure 3a shows the analysis for Black men. The dots in blue correspond to cold periods; the dots in red correspond to hot periods. The solid dots represent the observations from the 2008 to 2020 business cycle, while the hollow dots represent other periods. The blue line and the red line show the estimated relationship between the two measures in the hot and cold periods with the level of the lines calibrated to the most recent business cycle from 2008 to 2020. Finally, the black square shows the data point corresponding to the latest month. Figure 3b shows the same analysis for Hispanic men. Figures 4a and 4b are similar to Figures 3a and 3b but show the results for women. The results show that as a falling aggregate unemployment rate shrinks the gap between the unemployment rate and the non-cyclical rate, the gaps in labor market outcomes between Black workers and white workers and between Hispanic workers and white workers close. Moreover, the results suggest that the gaps between demographic groups close even more quickly once the aggregate unemployment rate falls below the non-cyclical rate—that is, in a hot labor market. According to the results calibrated to the 2008-2020 business cycle shown in Figure 3b, when the aggregate unemployment rate is 1 percentage point below the non-cyclical unemployment rate, the unemployment rate gap between white and Hispanic men would be closed. In fact, this is about what was observed in 2019 when the aggregate unemployment rate was 3½ percent and the non-cyclical unemployment rate was estimated to be 4½ percent. The empirical analysis in Figure 3a suggests—using a simple linear extrapolation—that an aggregate unemployment rate of 1 percent would be required to close the gap in unemployment rates between Black and white men.[3] Figures 4a and 4b suggest that an aggregate unemployment of about 1¾ percent would be required to fully eliminate the difference in the unemployment rate for white women and those for Black women and for Hispanic women. To be sure, an unemployment rate between 1 percent and 1¾ percent is well outside historical experience. As a result, the model may not be terribly informative about what those unemployment gaps would look like if the aggregate unemployment rate were to fall to such low levels….”

The Stagflation Threat Is Real (Nouriel Roubini, Project Syndicate) ($)
Nouriel Roubini argues the threepeat of loose monetary policy, loose credit and large fiscal deficits is setting the stage for stagflation, “…excessively stimulate aggregate demand and lead to inflationary overheating. Compounding the problem, medium-term negative supply shocks will reduce potential growth and increase production costs. Combined, these demand and supply dynamics could lead to 1970s-style stagflation (rising inflation amid a recession) and eventually even to a severe debt crisis….negative supply shocks are likely to persist over the medium and long term. At least nine can already be discerned…For starters, there is the trend toward deglobalization and rising protectionism, the balkanization and reshoring of far-flung supply chains, and the demographic aging of advanced economies and key emerging markets. Tighter immigration restrictions are hampering migration from the poorer Global South to the richer North. The Sino-American cold war is just beginning, threatening to fragment the global economy. And climate change is already disrupting agriculture and causing spikes in food prices. Moreover, persistent global pandemics will inevitably lead to more national self-reliance and export controls for key goods and materials. Cyber-warfare is increasingly disrupting production, yet remains very costly to control. And the political backlash against income and wealth inequality is driving fiscal and regulatory authorities to implement policies strengthening the power of workers and labor unions, setting the stage for accelerated wage growth. While these persistent negative supply shocks threaten to reduce potential growth, the continuation of loose monetary and fiscal policies could trigger a de-anchoring of inflation expectations. The resulting wage-price spiral would then usher in a medium-term stagflationary environment worse than the 1970s – when the debt-to-GDP ratios were lower than they are now. That is why the risk of a stagflationary debt crisis will continue to loom over the medium term….”

The Mountain Lions: these nine cities boomed in the COVID era (Alan Cole, Full Stack Economics)
Alan Cole on how spillover from “superstar” cities is likely driving growth in the mountain west and creating what may be important new clusters, “…Out of America’s 100 largest metropolitan areas, nine have experienced home price growth of more than 50 percent since late 2017 when the tax bill was signed into law. They are Boise, Spokane, Austin, Phoenix, Tucson, Colorado Springs, and a cluster of Utah cities: Salt Lake City, Ogden, and Provo….There is an easy narrative to tell⁠: that the traditional superstar cities, especially the California ones, screwed up their housing markets and produced “refugees” to other western states. While this narrative is undoubtedly true for some, it is incomplete and reductive. Demand for housing in Mountain Lion economies doesn’t just come from California transplants. It might be better to say that the U.S. as a whole produces many high-earning individuals, and the superstar cities are no longer providing sufficient housing to absorb them all….Most of all, though, these newer cities allow people to live more cheaply than in superstar cities. If the Los Angeles area could offer a more reasonable cost of living, the Austin community of video streamers might not exist. The burgeoning industry is at a natural intersection of some of L.A.’s existing strengths, like entertainment, visual content, and video game development. It would stand to reason that L.A. offers a natural employment cluster for streamers. But L.A.’s high cost of living repels some people, and this results in the creation of new industry elsewhere….”

China’s “Profound Transformation” is not so profound (Noah Smith, Noahpinion) ($)
Noah Smith contextualizes many of the recent policy shifts in Xi’s China, “…The actions against video games and fan clubs make this clear. Just like rock music and marijuana in America half a century ago, these forms of entertainment are seen as things that make kids lazy and inculcate them with bad values. But why is laziness bad? And why are modern values bad? Harrumphing conservatives rarely ask these questions, generally proceeding on intuition. But if you think about it for a moment, you’ll realize that their notion of “bad” probably translates, on some level, to “things not conducive to fighting a war”….It’s now clear what Xi doesn’t want young Chinese people to do. He does not want them playing games or studying too much for tests or oohing and ahhing over celebrities or buying and selling houses to each other or making cool new phone apps or selling each other financial products. He wants them making semiconductors, improving production processes, working in factories, studying the martial virtues, and inculcating themselves with an ideology of national greatness and a sense of national purpose…In any case, I think what we’re not seeing here is any kind of repeat of the Cultural Revolution. What we are seeing here is a country trying to prepare itself for a large-scale protracted major international conflict. Their ideas about what preparing for such a conflict means are fairly old-fashioned, and it’s not clear that they’ll work as desired. But who knows? They might work anyway. And ultimately, here’s the important point. It’s not the Chinese economic and social policies that should scare us. It’s the conflict that they’re intended to prepare for that should scare us….”

China’s Tech Crackdown: Its about Control, not Consumers or Competition! (Aswath Damodaran, Musings On Markets)
Aswath Damodaran on the Chinese tech crackdown, “…Put bluntly, without China, the world economy would have tread water for the last decade, since China accounted for close to two thirds of global GPD added on during the decade. As China’s economy has grown, its financial markets have also found their footing, albeit at a slower pace. In the graph below, I plot the market capitalization of Chinese listed companies, in dollar terms, and as a percent of market capitalization of all global companies: Chinese equities have risen from a negligible share of global market capitalization, in 2000, to more than 10% of global market capitalization, in 2020. It is beyond debate that China’s economy and markets have had a renaissance, cementing the country’s place as a leading economic power….Put simply, the Chinese government has more power to give and to take away from its companies than any other government of consequence in the world. Sensible investors have always understood this power, and tried to price them in, but for much of the last decade that has led them to bid up Chinese companies, on the assumption that Beijing would tilt the playing field in favor of domestic companies, at the expense of foreign competitors, and that the governments’ push for more economic growth would make it more likely to be an ally, rather than an adversary, to companies.That calculation, though, does miss the other quality that the Chinese government has always valued, which is control, and the tussle between the two (growth and control), in  my view, explains much of the crackdown on Chinese tech. As Chinese tech companies have become larger and more valuable, they have also become repositories for data on their customers, and that data is what Beijing not only fears, but covets. While the government may frame its crackdown on big tech as designed to protect Chinese consumers’ privacy or to prevent market domination, the truth is that  this is mostly about the Chinese government increasing its control of data and markets. Just as a thought experiment, if the Chinese government had the information that Tencent and Alibaba have about their customers, do you believe that they would not keep it? Whatever the reasons for the Chinese government’s actions, it is undeniable that they have changed the calculus, at least for the moment, of how the Chinese government affects Chinese tech company valuations. As investors bring in the downside of the government effects on value, markets have reassessed the pricing of all four of the companies that I am valuing, dropping market capitalization by 17% for Tencent, 46% for Alibaba and 7% for JD.com in 2021, over the most recent year, and providing a frosty reception to Didi’s IPO, with the stock price dropping 42% from its offer price of $14 a share , just a few weeks ago. The question is not whether the mark down on price has a good reason (it does), but whether the market is over or under reacting to the new relationship between Chinese tech and the Chinese government….”

NEWS

Labour shortages threaten housing supply (Staff, The Economist) ($)
“…As covid-19 spread and countries locked down, the construction workforce took a big hit. In America it shrank by nearly 15% in 2020, wiping out four years of job gains. But it has yet to recover fully, even as demand for housing has been turbo-charged by low interest rates and enthusiasm for bigger homes. Around 88% of American contractors say they are struggling to find workers, leaving nearly 300,000 roles vacant. Having decelerated in 2020, wage growth is now picking up. Britain has the most vacancies in two decades, with two-thirds of construction firms finding it difficult to hire bricklayers and carpenters. Half of all French construction firms report facing difficulties with recruitment, making it the country’s worst-affected sector, and a fifth of German building and civil-engineering companies say they lack skilled workers….Long-standing factors are also contributing to the construction labour shortages. Homebuilders have struggled to maintain a consistent labour force since the global financial crisis of 2007-09. That in part reflects deeper changes to immigration laws, which have stemmed a once-steady stream of labour. Inflows of foreign workers into America, for instance, have been in decline since the introduction of anti-immigration policies by President Donald Trump. Just over 44,000 foreign-born workers entered the construction industry in 2017, a sharp drop compared with nearer 70,000 in the previous year. Similarly, the Office for National Statistics reckons that Britain has lost 42% of its European construction workers since its vote to leave the European Union, which signalled an end to the free movement of migrants from the eu into the country. Skills shortages are also compounded by an ageing workforce. Around 41% of construction workers in America are expected to retire within the next decade. One in five British workers is over the age of 55. Recruiters seeking talent, meanwhile, find slim pickings. High-school graduates of all income backgrounds avoid construction jobs, perceiving them to be dirty, dangerous and difficult. Less than one in ten young people in Britain would consider a career in construction, shunning even white-collar jobs in areas such as engineering, quantity surveying and town planning….”

US fleet managers seek out foreign truck drivers to solve labour shortage (Steff Chavez, Financial Times) ($)
“…A dearth of workers willing to drive trucks has become so severe in the US that some fleet managers are petitioning to let more foreign operators into the country. Truck driving has always been a job with high turnover and a scarcity of labour. But the shortage has deepened since the pandemic, as training schools closed, some drivers quit and a stricter drug and alcohol testing system led to about 60,000 dismissals, said Bob Costello, chief economist at American Trucking Associations. The shortfall is “the worst ever”, he said….”

How the pandemic became stagflationary (Staff, The Economist) ($)
“…but the way the pandemic is affecting the economy is shifting. The world had become accustomed to the virus battering growth, as waves of infection caused a sudden stop in activity, and prices moderated or even fell. Delta, by contrast, looks like a stagflationary force that is sapping growth less dramatically but firing up inflation….The changing relationship between the virus and the economy has implications for policymakers. They will not be able to repeat the trick from earlier in the pandemic of restricting people’s movement as a way to contain the spread of the virus, while at the same time unleashing stimulus to create a compensating boom in demand for goods. A service-sector revival is now the only quick route to fast growth because that is where the slack is. In the second quarter of the year spending on services by American households was about 3% below its level in 2019 in real terms. Should the spread of Delta interfere with service industries such as leisure and hospitality, more stimulus will only create more inflation….”

Remote Work Is Crushing Low-Skilled Left Behind in U.S Cities (Michael Sasso, Bloomberg) ($)
“….In January, low-skilled consumer-services workers in the densest urban areas of the country accounted for almost 60% of hours lost in the U.S. economy, compared with the previous year, according to “The Geography of Remote Work,” a paper published by the National Bureau of Economic Research. And yet they accounted for 41% of the workforce, nationally. In other words, low-skilled workers in densely populated areas have borne the largest share of the pandemic’s economic fallout, including compared with their rural counterparts, according to the research, which used Census Bureau data….The authors describe the relationship between a city’s population density and the potential for remote work as “striking.” In America’s densest areas, about 45% of local jobs could be done away from the office, representing about 65% of payroll, they found…”

China bans men it sees as not masculine enough from TV (Joe McDonald, Associated Press)
“…China’s government banned effeminate men on TV and told broadcasters Thursday to promote “revolutionary culture,” broadening a campaign to tighten control over business and society and enforce official morality….Broadcasters must “resolutely put an end to sissy men and other abnormal esthetics,” the TV regulator said, using an insulting slang term for effeminate men — “niang pao,” or literally, “girlie guns.” That reflects official concern that Chinese pop stars, influenced by the sleek, girlish look of some South Korean and Japanese singers and actors, are failing to encourage China’s young men to be masculine enough. Broadcasters should avoid promoting “vulgar internet celebrities” and admiration of wealth and celebrity, the regulator said. Instead, programs should “vigorously promote excellent Chinese traditional culture, revolutionary culture and advanced socialist culture.”…”

NEW ECON RESEARCH

The Geography of Remote Work (Lukas Althoff et al., National Bureau of Economic Research) ($)
“We show that cities with higher population density specialize in high-skill service jobs that can be done remotely. The urban and industry bias of remote work potential shaped the COVID-19 pandemic’s economic impact. Many high-skill service workers started to work remotely, withdrawing spending from big-city consumer service industries dependent on their demand. As a result, low-skill service workers in big cities bore most of the recent pandemic’s economic impact. Our findings have broader implications for the distributional consequences of the U.S. economy’s transition to more remote work.”

NEW SCIENCE

Covid Hospital Admissions Fall for First Time Since June in U.S. (Jonathan Levin, Bloomberg) ($)
“…Hospital admissions of Covid-19 patients in the U.S. are declining for the first time since late June, a sign that the latest surge may have peaked — at least for now. The seven-day average of new daily admissions with confirmed Covid fell 2.4% from a week earlier to 12,280, the first such drop since June 27, according to the U.S. Department of Health and Human Services. The national decline is driven by falling numbers in recent hot spots — Florida, Texas and the Deep South…”

Covid-19 patients with severe symptoms suffer long-lasting cognitive impairments (Staff, The Economist) ($)
“…After controlling for factors including age, sex, educational level, first language and income, people who reported having recovered from covid-19 were found to perform worse than those who thought they had never caught it. The more severe the symptoms, the worse they performed. Those who had been put on a ventilator fared poorest of all. The gap between their average performance and that of participants who reported never having had covid-19 was equivalent to seven IQ points. Those who had been put on a ventilator scored lower than people who reported having a learning disability or had previously had a stroke…Scientists are still unsure how exactly covid-19 is linked to cognitive impairment. One preprint study compared brain scans done before the pandemic with scans of the same patients taken after they had tested positive. The researchers found that regions of the brain associated with memory, taste and smell had shrunk. There are several theories as to the cause. Some studies argue it is the body’s own immune response causing harm. Others show that the virus specifically attacks astrocytes, the brain’s “support cells”. A final camp claims the damage is caused by a lack of oxygen….”

Painless, Silent Organ Damage Seen in Covid ‘Long Hauler’ Study (Jason Gale, Bloomberg) ($)
“…Kidney damage is painless and silent, and it’s the latest ailment to be identified afflicting a large swath of Covid-19 survivors. Injury to the blood-filtering organ can occur among people who recover from the coronavirus at home, and escalates with the severity of Covid, a study found. Even non-hospitalized patients with no renal problems have almost a twofold higher risk of developing end-stage kidney disease, compared with someone who never had Covid…The data show 7.8 extra people needing dialysis or a kidney transplant per 10,000 of these mild-to-moderate Covid patients….”

The Complex Truth About ‘Junk DNA’ (Jake Buehler, Quanta Magazine)
“….Technological advances in sequencing, particularly in the past two decades, have done a lot to shift how scientists think about noncoding DNA and RNA, Sisu said. Although these noncoding sequences don’t carry protein information, they are sometimes shaped by evolution to different ends. As a result, the functions of the various classes of “junk” — insofar as they have functions — are getting clearer. Cells use some of their noncoding DNA to create a diverse menagerie of RNA molecules that regulate or assist with protein production in various ways. The catalog of these molecules keeps expanding, with small nuclear RNAs, microRNAs, small interfering RNAs and many more. Some are short segments, typically less than two dozen base pairs long, while others are an order of magnitude longer. Some exist as double strands or fold back on themselves in hairpin loops. But all of them can bind selectively to a target, such as a messenger RNA transcript, to either promote or inhibit its translation into protein. These RNAs can have substantial effects on an organism’s well-being. Experimental shutdowns of certain microRNAs in mice, for instance, have induced disorders ranging from tremors to liver dysfunction. By far the biggest category of noncoding DNA in the genomes of humans and many other organisms consists of transposons, segments of DNA that can change their location within a genome. These “jumping genes” have a propensity to make many copies of themselves — sometimes hundreds of thousands — throughout the genome, says Seth Cheetham, a geneticist at the University of Queensland in Australia. Most prolific are the retrotransposons, which spread efficiently by making RNA copies of themselves that convert back into DNA at another place in the genome. About half of the human genome is made up of transposons; in some maize plants, that figure climbs to about 90%….”

IN OUR AIRPODS

Omair Sharif Explains How Inflation Measures Really Work (Bloomberg Odd Lots)

WEDNESDAY, SEPTEMBER 1, 2021

BLOGS/OP-EDS

The rich get richer and rates get lower (Robert Armstrong, Financial Times) ($)
Robert Armstrong on the political implications of the new Mian, Straub and Sufi research that suggested excess savings are driven by an uptick in inequality, “….What would Goodhart and Pradhan say in response? I don’t presume to answer for them, but two things strike me. One is that MS&S focus just on US data, and G&P are emphatic that, because capital and productive capacity moves across borders, you have to look at the global picture. Japan, for example, has not experienced falling rates or rising inflation as it has aged. It was able to keep prices down by moving productive capacity to China. Second, G&P think savings is only part of the picture; the supply of workers is important too….. I think if MS&S are right, the political implications are particularly nasty. Inequality, in their view, is self-perpetuating, with the feedback loop running through low rates. Excess savings of the rich depress rates; low rates push asset prices up; the rich get richer still. Many governments are engaging in monetary policies that, in all likelihood, make this flywheel turn faster. For how long are the people who sit outside this wealth machine — a majority of voters — going to tolerate this? This strikes me as even nastier than the intergenerational conflict you would expect if G&P are right (with the old fighting to keep the social safety net in place as working age people fight against ever-higher taxes). Those of us who own a few assets, and have done so well as a result in recent decades, should give this some thought….”

Who is the Wealthiest Generation? (Jeremy Horpedahl, Economist Writing Everyday)
Jeremy Horpedahl argues it’s likely the kids are alright, “…put wealth in per capita terms! If we do that, here’s the chart we get (also, of course, adjusted for inflation)….Looking at…data (from the Fed Distributional Financial Accounts) from a different perspective gives us a much different picture of recent history. In this version, Gen X is now richer (30% richer!) than Boomers were at the same age (late 40s). Millennials don’t yet have a year of overlap with Boomers, but they are tracking Gen X almost exactly. There is no reason they won’t continue to track Gen X, and therefore exceed Boomers as well when they are in their late 40s (which will happen in about 2037 for Millennials)….”My prediction is that by the time Millennials are in their late 40s, they will even surpass Gen X in wealth. Why? The reason is counterintuitive: student debt. Huh? Isn’t student debt what is holding Millennials back? In some sense, yes. But in the long run, no. Right now, many Millennials (and some Gen Xers!) hold a lot of student debt. That goes on the liabilities side of the balance sheet. But there is no corresponding asset showing up the balance sheet, but there is an asset: their human capital! Over their lifetime, that human capital will give them even greater earning potential in later life. Much like Gen X basically tracked Boomers until their mid-40s, until their student loans were paid off, and their degrees (and graduate degrees!) really started to pay off in the labor market…”

House Prices Increase Sharply in June (Bill McBride, Calculated Risk)
Bill McBride on housing inventory, “..This graph below shows existing home months-of-supply (inverted, from the NAR) vs. the seasonally adjusted month-to-month price change in the Case-Shiller National Index (both since January 1999 through June 2021). There is a clear relationship, and this is no surprise (but interesting to graph).  If months-of-supply is high, prices decline. If months-of-supply is very low (like now), prices rise quickly. In June, the months-of-supply was at 2.5 months, and the Case-Shiller National Index (SA) increased 1.8% month-over-month (a month-over-month record).  The black arrow points to the June dot. In the June existing home sales report released last week, the NAR reported months-of-supply increased to 2.6 month in July. There is a seasonal pattern to inventory, but this is still very low – and prices are increasing sharply. The normal level of inventory is probably in the 4 to 6 months range….”

NEWS

States That Cut Unemployment Benefits Saw Limited Impact on Job Growth (Sarah Chaney Cambon + Danny Dougherty, Wall Street Journal) ($)
“…States that ended enhanced federal unemployment benefits early have so far seen about the same job growth as states that continued offering the pandemic-related extra aid, according to a Wall Street Journal analysis and economists….Nonfarm payrolls rose 1.33% in July from April in the 25 states that ended the benefits and 1.37% in the other 25 states and the District of Columbia, the Journal analysis of Labor Department data showed. The payroll figures are taken from a government survey of employers. The analysis compared July totals with April, before governors in May started announcing plans to end or reduce the benefits during the summer. Economists who have conducted their own analyses of the government data say the rates of job growth in states that ended and states that maintained the benefits are, from a statistical perspective, about the same….“If the question is, ‘Is UI the key thing that’s holding back the labor market recovery?’ The answer is no, definitely not, based on the available data,” said Peter Ganong, a University of Chicago economist, referring to unemployment insurance….Economists at Goldman Sachs analyzed the behavior of workers in the July jobs report after adjusting for age, gender, marital status, education, household income, industry and occupation of a respondent’s current or prior job. They said they found “clear evidence that benefit expiration increased the rate at which unemployed workers became employed.” Goldman Sachs estimated that if all states had ended benefits, July payroll growth would have been 400,000 stronger. Economists at the firm projected the nationwide benefit cutoff this month will account for 1.5 million job gains through the end of the year….”

COVID-19 pandemic saw an increase in the share of U.S. mothers who would prefer not to work for pay (Rachel Minkin, Pew Research Center)
“…a new analysis of an October 2020 Pew Research Center survey of U.S. adults finds an increase in the share of mothers who said the best arrangement for them personally would be not to work for pay at all. About a quarter (27%) of mothers with children younger than 18 at home said this in the October 2020 survey, up from 19% who said so in a summer 2019 survey. The share of mothers who said it would be best for them to work full time dropped from 51% to 44% during that span, while around three-in-ten in both surveys said they would prefer to work part time.There was no significant change in how fathers described their optimal work arrangements. In both the 2019 and 2020 surveys, around eight-in-ten dads said they would prefer to work full time. Much smaller shares said it would be best for them personally to work part time or not to work for pay at all….While there have been some shifts in overall attitudes in what mothers see as the best work arrangement for them personally, looking at the same respondents over time shows a different pattern.Among mothers who answered the question in both the 2019 and 2020 surveys, 21% gave an answer in 2020 that indicated a shift toward wanting to work less than they said would be ideal in 2019 (either from working full time or part time to not working for pay at all, or from working full time to working part time). At the same time, 18% indicated that their ideal work situation involved working more than they said was ideal before the pandemic (either from not working for pay at all to working full time or part time, or from working part time to working full time)….”

‘It’s not a normal life’: truck drivers warn of burnout as global shortage bites (Harry Dempsey et al., Financial Times) ($)
“…Bob Costello, chief economist at American Trucking Associations, said the number of drivers in general freight in the US had dropped to 430,000, down from 465,000 people at the start of 2020. “The driver shortage in the US is getting even worse; it is as bad as it has ever been,” he added…US trucking companies are also looking overseas for solutions, despite strict quotas on visas. Anda Malescu, managing partner at Miami-based Malescu Law, is helping trucking companies to source drivers from Mexico, Canada and South Africa. “Companies are increasingly desperate,” she said. Large companies are turning on the charm offensive to hire new recruits. Walmart is offering an $8,000 signing bonus for some drivers, while British retailer John Lewis announced plans to raise driver salaries by up to £5,000 a year. UK wages for a category of LGV drivers have increased 21 per cent to £36,800 in just under a year, according to recruiter Adzuna. But trade groups say the bonuses and better pay only encourage drivers to move from one employer to another without attracting new blood to the profession, while doing nothing to resolve the problems of drivers who are not paid for time spent waiting around…..”

Xi Tests ‘Common Prosperity’ Policies in Alibaba’s Home Province (Staff, Bloomberg)
“…To understand what President Xi Jinping envisions in his calls for “common prosperity,” look to the pilot program underway in the wealthy province of Zhejiang, home to 65 million people and some of China’s most successful private companies….In fact, there is already evidence of how far Beijing intends to go. In June, the national government designated Zhejiang, China’s third-richest province, to pilot policies designed to reduce inequality, and in July, it released detailed targets. “The experience of Zhejiang shows that private sector development is very important,” said Kevin Chen, director of the Center for Agricultural and Rural Development, a Beijing-based think tank. “The reason Zhejiang was chosen is probably because it has a very strong market economy.” The central coastal area is home to Alibaba Group Holding Ltd. and Zhejiang Geely Holding Group Co., among others. Four of the 10 richest people in China have based their businesses in the capital city of Hangzhou. The private sector accounts for 66% of provincial gross domestic product, compared with around 60% nationally….Rising housing costs have been a source of discontent across China since the country created a commercial market two decades ago. Zhejiang, where real estate prices grew at an average annual rate of about 6% over the last decade, doesn’t want to see homes get any more expensive. “The central government wants Zhejiang to explore and build a system that can effectively contain housing prices, so that the government won’t have to rely on land sales and the property sector for revenue,” said Zeng….”

NEW ECON RESEARCH

The recovery from the Great Recession: A long, evolving expansion (Michael Strain + Jay Shambaugh, American Academy of Political And Social Science)
“Prior to 2020, the Great Recession was the most important macroeconomic shock to the United States’ economy in generations. Millions lost jobs and homes. At its peak, one in ten workers who wanted a job could not find one. On an annual basis, the economy contracted by more than it had since the Great Depression. A slow and steady recovery followed the Great Recession’s official end in summer 2009, but because it was slow and the depth of the recession so deep, it took years to reduce slack in labor markets. But because the recovery lasted so long, many pre-recession peaks were exceeded, and eventually real wage growth accumulated for workers across the distribution. In fact, the business cycle (including recession and recovery) beginning in December 2007 was one of the better periods of real wage growth in many decades, with the bulk of that coming in the last years of the recovery.”

NEW SCIENCE

Scientists warn that Covid will accelerate ‘dementia pandemic’ (Clive Cookson, Financial Times) ($)
“…There is mounting evidence that Covid-19 can cause long-term brain damage. One piece is that similar biochemical changes are observed in some coronavirus patients and in people with Alzheimer’s — indicating neuronal injury and inflammation….Another is the growing number of studies showing that many people with so-called long-Covid suffer from cognitive problems including “brain fog” as well as difficulties with memory, concentration and language. In most patients, such symptoms are expected to resolve themselves over time but the fear is that it may tip some into progressive dementia. Besides formal scientific studies, clinicians such as Atri and Gill Livingston, professor of psychiatry at University College London, say they have noticed more patients whose dementia is progressing unexpectedly fast after coronavirus…..Though it is too soon to quantify the exact effect of Covid-19 on future dementia cases, “it could have a large impact”, said Atri, who is also director of the Banner Sun Health Research Institute in Arizona. “This is a nasty, vicious virus and I’m sure it will tip some people over into dementia sooner than would otherwise be the case….”

The New Thermodynamic Understanding of Clocks (Natalie Wolchover, Quanta Magazine)
“…Early in their conversations in Barcelona, Huber, Erker and their colleagues realized that a clock is anything that undergoes irreversible changes: changes in which energy spreads out among more particles or into a broader area. Energy tends to dissipate — and entropy, a measure of its dissipation, tends to increase — simply because there are far, far more ways for energy to be spread out than for it to be highly concentrated. This numerical asymmetry, and the curious fact that energy started out ultra-concentrated at the beginning of the universe, are why energy now moves toward increasingly dispersed arrangements, one cooling coffee cup at a time. Not only do energy’s strong spreading tendency and entropy’s resulting irreversible rise seem to account for time’s arrow, but according to Huber and company, it also accounts for clocks. “The irreversibility is really fundamental,” Huber said. “This shift in perspective is what we wanted to explore.”…The more regular the ticks, the more accurate the clock. In their first paper, published in Physical Review X in 2017, Erker, Huber and co-authors showed that better timekeeping comes at a cost: The greater a clock’s accuracy, the more energy it dissipates and the more entropy it produces in the course of ticking….In another paper published in Physical Review X earlier this year, the theorists expanded on their three-atom clock model by adding complexity — essentially extra hot and cold atoms connected to the ticking atom. They showed that this additional complexity enables a clock to concentrate the probability of a tick happening into narrower and narrower windows of time, thereby increasing the regularity and accuracy of the clock. In short, it’s the irreversible rise of entropy that makes timekeeping possible, while both periodicity and complexity enhance clock performance. But until 2019, it wasn’t clear how to verify the team’s equations, or what, if anything, simple quantum clocks had to do with the ones on our walls….The clock studies are suggestive, in showing that time can only ever be measured imperfectly. The “big question,” said Huber, is whether the fundamental limit on the accuracy of clocks reflects a fundamental limit on the smooth flow of time itself — in other words, whether stochastic events like collisions of coffee and air molecules are what time ultimately is….”

IN OUR AIRPODS

Afghanistan with NATO’s Stoltenberg (Bloomberg Surveillance)

TUESDAY, AUGUST 31, 2021

BLOGS/OP-EDS

Case-Shiller: National House Price Index increased 18.6% year-over-year in June (Bill McBride, Calculated Risk)
Bill McBride provides context for the new Case-Shiller numbers, “…The first graph shows the nominal seasonally adjusted Composite 10, Composite 20 and National indices (the Composite 20 was started in January 2000). The Composite 10 index is up 1.6% in June (SA). The Composite 20 index is up 1.8% (SA) in June. The National index is 40% above the bubble peak (SA), and up 1.8% (SA) in June.  The National index is up 90% from the post-bubble low set in February 2012 (SA). The second graph shows the year-over-year change in all three indices. The Composite 10 SA is up 18.5% compared to June 2020.  The Composite 20 SA is up 19.1% year-over-year. The National index SA is up 18.6% year-over-year….”

Maximum Employment and the Participation Cycle (Bart Hobijna + Aysegul Sahin, Federal Reserve Bank of Kansas City)
In a presentation over the weekend, Bart Hobijna and Aysegul Sahin argued that labor force participation is cyclical and lags the unemployment cycle; that LFP is driven by upticks in employment stability, for example lower job-loss risk and tight labor markets as opposed to labor force entry and exit.  A 1 percentage point decline in the UI rate in a hot labor market results in cyclical upward pressure of 0.65 percentage points on the participation rate,“….Prevailing narrative attributes the procyclicality of the participation rate to the entry and exit of marginalized workers….We show that it is driven by employment stability of all workers….Perry-Okun Rule holds for all groups. Improvements in participation during expansions are not limited to discouraged workers….The participation cycle lags the unemployment cycle since the adjustment dynamics of the participation rate are much slower than those of the unemployment rate…. Our method allows policy makers to track the participation cycle in real time on a monthly basis without requiring an estimate of the trend participation rate….”

Inequality, Interest Rates, Aging, and the Role of Central Banks (Matt Klein, The Overshoot) ($)
Matt Klein compares two new research papers we recently highlighted that offer differing explanations for the fall in the r*, he views both findings as complementary, “…Adrien Auclert, Hannes Malmberg, Frédéric Martenet, and Matthew Rognlie…An aging society might produce less, but demand falls even further and faster. The process began in the 1980s and could continue for decades to come. That’s consistent with what I noted almost six years ago when writing about Japan. There, population aging in the 1990s and 2000s pushed the household saving rate to zero during a period of sustained government budget deficits—yet interest rates went down. The reason was that households are only one piece of the broader economy. In Japan’s case, the decline in business investment and the rise in corporate profitability (which in turn was partly attributable to lower pay for workers) were more than enough to offset what was happening in the rest of the economy….Atif Mian, Ludwig Straub, and Amir Sufi….key insight is that the ultra-rich are different from you and me: they have much higher saving rates regardless of their age. No matter how expensive your tastes, there’s a limit to how much you can consume, which means any income above that threshold has to get saved. The ultra-rich therefore spend relatively small shares of their income on goods and services that directly provide jobs and incomes to others, instead accumulating stocks, bonds, art, trophy real estate, and other assets. The ultra-rich need no encouragement to refrain from buying goods and services, so any increase in income concentration should put downward pressure on interest rates. Another way to look at it is that an increase in income concentration boosts the demand for financial assets, which should push up prices and push down yields….While Mian et al frame their research as being partly opposed to Auclert et al, my reading of the two papers is that they are complementary. Auclert et al looked at the impact of aging on investment, while Mian et al looked at the impact of rising inequality on consumer spending and saving. All of those things affect interest rates….”

Official media hype a chilling WeChat post; Central Conference on Ethnic Affairs; Afghanistan (Bill Bishop, Sinocism) ($)
Bill Bishop notes a new rhetorical tack from Zhongnanhai, “A post by a prolific nationalist/leftist blogger is getting a ton of attention because it was republished by many official propaganda outlets, in what can be reasonably interpreted as a sign that the views expressed conform with the views of Party Center. If that is a correct interpretation then things may get get much uglier for entertainers, the rich, and anyone left who has even the faintest hint of a positive thought about America. Here is a taste, from the conclusion: “At present, China is facing an increasingly severe and complex international environment. The United States is implementing increasingly severe military threats, economic and technological blockades, financial strikes, and political and diplomatic encirclement against China, and is waging biological warfare, cyber warfare, public opinion warfare, and space warfare against China, with increasing efforts to launch a color revolution against China through the fifth column within China. If at this time we still rely on the big capitalists as the main force against imperialism and hegemony, and still cater to the U.S. “tittytainment strategy 奶头乐战略”, and let our young generation lose their toughness and virility, then we will fall first without our friends, just like the Soviet Union did back then, letting the country collapse, letting the country’s wealth be looted, and letting the people fall into a deep disaster. Therefore, the profound changes that are currently taking place in China are precisely to deal with the current severe and complex international situation, and precisely to deal with the savage and ferocious attacks that the United States has begun to launch against China. Each of us can feel that a profound social change has begun, not only in the capital circle, but also in the entertainment circle, It is necessary not only to destroy the decadent forces but also to scrape the bones and heal the wounds. It is also necessary to clean the house, freshen the air, make our society healthier, so that the main body of society can feel happy…”

Will Census Trends Save the Democrats? (Ruy Teixeira, The Liberal Patriot)
Ruy Teixeira implies that the center of gravity of the 2024 election will likely be college educated white voters, “…An underappreciated fact about the 2020 election is that Biden’s improvements in performance relative to Hillary Clinton in 2016—the improvements that enabled him to beat Donald Trump while Clinton lost—are almost entirely attributable to improved support among whites, especially white college-educated voters. That is, the proximate reason for Biden’s victory had little to do with the race-ethnic diversification trends highlighted by the Census. According to Catalist data, on a national level white college voters moved over 8 margin points toward Biden in 2020 (based on the two party vote), greater than Biden’s gains among white noncollege voters (3 points) and starkly different from nonwhite voters who actually moved toward Trump. The importance of white college voters is clear on the national level but can also be seen in key states like Arizona and Georgia by estimating contributions to Democratic margin (CDM) for different demographic groups. CDM is calculated by multiplying an election’s proportion of voters in a given demographic by their Democratic margin in that election. The result can be compared across elections to see how demographic groups change in their contribution to the overall Democratic margin—and therefore, in these cases, which groups enabled Biden to tip these states to the Democrats. Start with Arizona. Arizona did not escape the nationwide pattern of Hispanic voters moving toward Trump. As a result, despite the underlying trend toward more eligible Latino voters and excellent turnout performance, the overall CDM of Arizona Hispanic voters actually went down by a little less than a point in 2020. On the other hand, the CDM of white voters, driven especially by white college-educated voters, improved by around 5 points—more than enough to account for the shift in Arizona to a Democratic advantage in 2020. In other words, it was educated whites, not Hispanics, who won Arizona for Biden. In Georgia, the most important part of the nonwhite vote, black voters, had lower Democratic margins as well as slightly reduced voter share due to declining relative turnout. As a result, the CDM of black voters in 2020 probably declined slightly in the state. As in Arizona, the Democratic shift from a deficit in 2016 to an advantage in 2020 can be accounted for almost entirely by a sharp shift toward the Democrats among white voters, especially white college-educated voters. This shift was the major factor behind Democrats carrying the state. This suggests that white college voters will loom large in future Democratic fortunes. Even as whites decline as an overall share of the country and in all states, the Democrats are clearly reliant on a key segment of this declining demographic. Democrats will need to ensure that they retain much of their increased white college support—a good portion of which may have been driven by opposition to Trump—regardless of the race-ethnic diversification trends tracked by the Census….”

NEWS

China Commentary Calls Xi’s Crackdown a ‘Profound Revolution’ (Staff, Bloomberg) ($)
“….A commentary published widely in Chinese state-run media described President Xi Jinping’s regulatory crackdown as a “profound revolution” sweeping the country and warned that anyone who resisted would face punishment.  “This is a return from the capital group to the masses of the people, and this is a transformation from capital-centered to people-centered,” the commentary said, adding that it marked a return to the original intention of the Communist Party. “Therefore, this is a political change, and the people are becoming the main body of this change again, and all those who block this people-centered change will be discarded.”…Xi’s campaign calling for “common prosperity” has intensified in recent weeks, with agencies vowing to step up tax enforcement, crack down on labor abuses and take action against “fan culture” in the entertainment industry. The measures have roiled markets, with a measure of price swings in the country’s shares last week soaring to the highest level in 16 months. The author wrote that high housing prices and medical costs will become the next targets of the campaign. While the piece reiterated comments from prominent Chinese economists last week that the campaign would not “kill the rich to help the poor,” it said the government needed to “combat the chaos of big capital.” “The capital market will no longer become a paradise for capitalists to get rich overnight,” the commentary said. “The cultural market will no longer be a paradise for sissy stars, and news and public opinion will no longer be in a position worshiping Western culture.”…”

China Limits Online Videogames to Three Hours a Week for Young People (Keith Zhai, Wall Street Journal) ($)
“….China has a new rule for the country’s hundreds of millions of young gamers: No online videogames during the school week, and one hour a day on Fridays, weekends and public holidays….The new regulation, unveiled by the National Press and Publication Administration, will ban minors, defined as those under 18 years of age, from playing online videogames entirely between Monday and Thursday. On the other three days of the week, and on public holidays, they will be only permitted to play between 8 p.m. and 9 p.m….The new restrictions targeting videogames, however, highlight the emphasis that Beijing has placed on cultivating morality in its youth, a preoccupation of senior officials that has come to the fore in recent weeks. Over the past month, a number of celebrities—some of whom have generated headlines for alleged sexual and other misconduct—have had their internet presences disappear overnight, amid state-media calls to better protect young people from being led astray. Videogames have become a particular object of ire as Beijing seeks to reshape an industry it has described as motivated by profit at the expense of public morals. A state-media outlet this month triggered a selloff in shares of Tencent, after it published an article that described online games as “opium for the mind.” Chinese leader Xi Jinping, too, has warned publicly in recent months about the perils of youth gaming addiction, remarks that have put more pressure on officials to act….”

Common Prosperity: Decoding China’s New Populism (Nathaniel Taplin + Jacky Wong, Wall Street Journal) ($)
“…China has long been one of the most unequal major economies in the world, with one common measure of income inequality, the Gini coefficient, at 0.465 in 2019 according to official data out of a possible 1.0. Wealth inequality is higher: The top 1% hold 30.6% of the country’s wealth according to Credit Suisse data, below the U.S. at 35.3% but well above the U.K., Japan and Italy.But rapidly falling birthrates, the coronavirus pandemic and its aftermath have made inequality tougher to ignore. The political stumbles and anticompetitive practices of tech titans like Alibaba and Tencent have also handed Mr. Xi a convenient target for the public’s ire. As a result, high-net-worth individuals and internet tech firms could come under further pressure to “donate” resources to social causes and find their tax rates rising. China’s long-mooted property tax could finally become a reality, although that is less certain….”

U.S. Home-Price Growth Rose to Record in June (Nicole Friedman, Wall Street Journal) ($)
“…Home-price growth climbed to a record in June, as robust demand continued to outpace the number of homes on the market. The S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas across the nation, rose 18.6% in the year that ended in June, up from a 16.8% annual rate the prior month. June marked the highest annual rate of price growth since the index began in 1987….A separate measure of home-price growth by the Federal Housing Finance Agency also released Tuesday found an 18.8% increase in home prices in June from a year earlier, a record in data going back to 1991….”

House Rents Pop Up as New Investors Pile In (Will Parker, Wall Street Journal) ($)
“…Asking rents for houses rose nearly 13% for the year to date through July, the highest annual increase in the past five years as tracked by real-estate data company Yardi Matrix, which analyzed professionally managed properties. The sharp rise partly reflects increasing demand from people who can’t afford to buy homes as well as city-dwellers who moved to the suburbs to rent during the pandemic. Meanwhile, the supply of new houses also continues to trail historical levels relative to population growth, and builders in some places remain constrained by zoning laws and available land….Apartment asking rents also have risen, but at a slower pace: 8.3% for the year to date through July, Yardi Matrix said. The difference partly reflects weaker demand in downtowns that lost population after Covid-19 hit, although those markets have rebounded in recent months….”

NEW ECON RESEARCH

The Consumption, Income, and Well-Being of Single Mother Headed Families 25 Years After Welfare Reform (Jeehoon Han et al., NBER) ($)
“We investigate how material well-being has changed over time for single mother headed families—the primary group affected by welfare reform and other policy changes of the 1990s. We focus on consumption as well as other indicators including components of consumption, measures of housing quality, and health insurance coverage. The results provide strong evidence that the material circumstances of single mothers improved in the decades following welfare reform. The consumption of the most disadvantaged single mother headed families—those with low consumption or low education—rose noticeably over time and at a faster rate than for those in comparison groups.”

The Financial Channel of Wage Rigidity (Benjamin Schoefer, National Bureau of Economic Research) ($)
“I propose a financial channel of wage rigidity. In recessions, rather than propping up marginal (new hires’) costs of labor, rigid average wages squeeze cash flows, forcing firms to cut hiring due to financial constraints. Indeed, empirical cash flows and profits would turn acyclical if wages were only moderately more procyclical. I study this channel in a search and matching model with financial constraints and rigid wages among incumbent workers, while new hires’ wages are flexible. Individually, each feature generates no amplification. By contrast, their interaction can account for much of the empirical labor market fluctuations—breaking the neutrality of incumbents’ wages for hiring, and showing that financial amplification of business cycles requires wage rigidity.”

NEW SCIENCE

Moderna Creates Twice as Many Antibodies as Pfizer, Study Shows (Jason Gale, Bloomberg) ($)
“…Moderna Inc.’s Covid vaccine generated more than double the antibodies of a similar shot made by Pfizer Inc. and BioNTech SE in research directly comparing immune responses to the inoculations.A study of almost 2,500 workers at a major Belgium hospital system found antibody levels among individuals who hadn’t been infected with the coronavirus before getting two doses of the Moderna vaccine averaged 2,881 units per milliliter, compared with 1,108 units/mL in an equivalent group who got two jabs of the Pfizer shot….”

Having SARS-CoV-2 once confers much greater immunity than a vaccine—but vaccination remains vital (Meredith Wadman, Science)
“…The natural immune protection that develops after a SARS-CoV-2 infection offers considerably more of a shield against the Delta variant of the pandemic coronavirus than two doses of the Pfizer-BioNTech vaccine, according to a large Israeli study that some scientists wish came with a “Don’t try this at home” label. The newly released data show people who once had a SARS-CoV-2 infection were much less likely than never-infected, vaccinated people to get Delta, develop symptoms from it, or become hospitalized with serious COVID-19….The researchers also found that people who had SARS-CoV-2 previously and received one dose of the Pfizer-BioNTech messenger RNA (mRNA) vaccine were more highly protected against reinfection than those who once had the virus and were still unvaccinated…. Nussenzweig says the results in previously infected, vaccinated people confirm laboratory findings from a series of papers in Nature and Immunity by his group, his Rockefeller University colleague Paul Bieniasz and others—and from a preprint posted this month by Bieniasz and his team. They show, Nussenzweig says, that the immune systems of people who develop natural immunity to SARS-CoV-2 and then get vaccinated produce exceptionally broad and potent antibodies against the coronavirus. The preprint, for example, reported that people who were previously infected and then vaccinated with an mRNA vaccine had antibodies in their blood that neutralized the infectivity of another virus, harmless to humans, that was engineered to express a version of the coronavirus spike protein that contains 20 concerning mutations. Sera from vaccinated and naturally infected people could not do so….”

South African Scientists Say New Variant May Have ‘Increased Transmissibility’ (Antony Sguazzin, Bloomberg) ($)
“…South African scientists said they identified a new coronavirus variant that has a concerning number of mutations. The so-called C.1.2. variant was first identified in May in the South African provinces of Mpumalanga and Gauteng, where Johannesburg and the capital, Pretoria, are situated, the scientists said in a research paper. By August 13, it had been found in six of South Africa’s nine provinces as well as the Democratic Republic of Congo, Mauritius, Portugal, New Zealand and Switzerland. The mutations on the virus “are associated with increased transmissibility” and an increased ability to evade antibodies, the scientists said. “It is important to highlight this lineage given its concerning constellation of mutations.”…”

IN OUR AIRPODS

Fed In Tough Spot, Lacker Says (Bloomberg Surveillance)

MONDAY, AUGUST 30, 2021

BLOGS/OP-EDS

The days of subsidizing non-work are back (Angela Rachidi, American Enterprise Institute)
AEI’s Angela Rachidi on the increase in benefits for Americans on the dole, “….As shown in this chart, non-working single parents with two children living in Oklahoma City could receive almost $30,000 in cash or cash-like benefits — $37,929 when we add the value of Medicaid. Non-working residents of Washington, DC could get thousands more. The impact of these amounts on employment behavior are difficult to quantify, but it is reasonable to expect that government assistance in these amounts reduces work…..Work disincentives have been a long-standing problem in US safety net programs. However, current efforts by President Biden and the Democrats will only make matters worse. Under previous policies (before changes to SNAP and the CTC), a single mother with two children in Oklahoma City could increase her income by nearly $15,000 per year by working full-time at $10 per hour, which would be only slightly below her earnings alone ($17,500) because increases in the EITC and CTC offset much of the loss in welfare benefits. If the Democrats fully implement their new policies, the same mother stands to gain only $10,870, less than her earnings because she loses SNAP and housing benefits as her income increases. The new policies raise the effective marginal tax rate on earnings for low-income families and make employment less attractive, something AEI economists Alex Brill and Kyle Pomerleau acknowledged earlier this year…..”

The rapidly shifting Hispanic experience of American criminal justice (Keith Humphreys, Slow Boring) ($)
Keith Humphreys highlights a surprising fact, Hispanic Americans are now slightly less likely to be jailed than white Americans, “….An otherwise dull new government report on incarceration contains a startling fact: Hispanics are slightly less likely to be jailed than whites. It’s one of multiple unappreciated signs of fading disparities between Hispanics and non-Hispanic whites in the criminal justice system, a phenomenon with substantial implications both for the future of reform and electoral politics…..The dwindling of Hispanic-white disparities is even more remarkable in light of criminal behavior being so heavily concentrated in adolescence and young adulthood,. The median age for Hispanics is 29.8 years versus 43.7 for whites, meaning even in a system free of prejudice that punished solely on the basis of crimes committed, we would expect criminal justice disparities between the populations to be growing, not shrinking. Parallel changes appear in who the criminal justice system employs. From 1997 to 2016, the proportion of police officers who were African-American was stable, whereas the proportion who were Hispanic increased 61%. This helps explain why a June 2021 Gallup poll found that the proportion of Hispanics expressing “a lot” or “a great deal” of trust in police was 49%, almost as high as whites (56%), and far greater than that of African-Americans (27%).  Hispanic views on policing and crime may also be similar to whites because the two groups rate of being violent crime victims is almost identical (21.3 per thousand persons for Hispanics, 21.0 for whites)….”

Labour adjustment and productivity dynamics: Cross-country evidence and policy implications (Maarten Dossche et al., Center For Economic and Policy Research)
Maarten Dossche, Andrea Giovanni Gazzani and Vivien Lewis document that countries with lower employment volatility have a higher correlation between output and measured labour productivity,  “…Using data from 1984 to 2019, Figure 1 shows that countries with lower employment volatility are characterised by more procyclical labour productivity, that is, by a higher correlation between output and measured labour productivity (i.e. output per hour worked). This pattern holds also for the Great Recession period from 2008 to 2013, which is widely believed to have been driven by deficient demand. Replacing employment volatility with unemployment volatility does not alter our key empirical message, suggesting that the participation margin does not play a large role for the stylised fact shown here….Labour productivity is more procyclical in OECD countries with lower employment volatility. To capture this new stylised fact, this column proposes a business cycle model with employment adjustment costs, variable hours, and labour effort. In the model with variable effort, it shows that greater labour market frictions are associated with procyclical labour productivity as well as stable employment. In contrast, the constant-effort model fails to replicate the observed cross-country pattern in the data. Labour market deregulation has a greater effect on labour productivity cyclicality and employment volatility when effort can vary….”

Long live the labour shortages (Martin Sandbu, Financial Times) ($)
Martin Sandbu argues that tight labor markets could be driving an uptick in productivity growth, “…It is more counterintuitive that labour shortages could be a good thing for the economy. Hardly a day goes by without headlines about managers complaining they cannot find more staff and have to stand in for missing waiters or cleaners. In other words, having to do more with less, or being more productive….In the US, this measure — gross domestic product per hour worked — will have grown by 6.7 per cent in the three years spanning the pandemic, from the fourth quarter of 2019 to the fourth quarter of 2022, according to OECD numbers. That is more than double the 3.3 per cent rate racked up in the preceding three-year period. The same acceleration is forecast for all the G7 countries. Japan is projected to increase labour productivity by 2 per cent in the three years to the end of 2022 — after it fell in the preceding three years. Germany goes from a three-year growth rate of 1.1 to 2.6 per cent, France from 1.8 to 2.5, the UK from 0.6 to 3.7, and Italy from zero to 1.4. Of the nine biggest rich economies, only South Korea sees a slowdown in productivity growth in this period — and that is to a still respectable rate of 4 per cent….”

 NEWS

Fed Faces New Challenge Spelling Out Employment Goals (Nick Timiraos, Wall Street Journal) ($)
“…Mr. Powell said earlier this year the economy should be able to return to the unemployment rates that prevailed before the crisis, but he has shied away recently from suggesting that the U.S. can also return to the labor-force participation rates it achieved before the crisis. Several Fed officials have cautioned in recent weeks that it may be difficult to return to pre-pandemic labor market conditions. Dallas Fed President Robert Kaplan, in a recent interview, said he thinks the U.S. has “lost somewhere between 4 or 4.5 million workers” due to retirements or increased caregiving demands. “That has tightened the workforce faster than the headline numbers would suggest,” he said. Mr. Kaplan thinks that could lead to more persistent price pressures as midsize and small businesses, in particular, pass along rising wages. Employers’ concern about having difficulty hiring workers at prevailing wages “is not going to be a short-term thing. It’s not going to get resolved in the fall,” he said….The labor-force participation rate—the share of adults holding or seeking jobs—fell during the first half of the last decade’s expansion as discouraged individuals and aging Americans stopped searching for jobs. That reversed around 2016. For workers between the ages of 25 and 54, the participation rate has partly recovered from a large drop last year. It stood at 81.8% last month, up from 79.8% in April 2020, but below its pre-pandemic level of 83% in January 2020….”

U.S. Household Income Jumped in July as Spending Growth Slowed (Josh Mitchell, Wall Street Journal) ($)
“…U.S. household income rose rapidly last month as the government handed out enhanced tax breaks for parents, priming the economy for stronger growth once the Delta variant subsides. The 1.1% gain in household income marked the biggest jump since March, the Commerce Department said Friday. Families started receiving tax credits worth up to an additional $1,600 per child this year as part of a $1.9 trillion pandemic-relief package passed by Congress this spring….Growth in consumer spending slowed last month to 0.3%—less than a third June’s spending increase of 1.1%. Economists believe the Delta variant, a highly contagious strain of Covid-19, is partly to blame for the slower growth. Consumer fears of infection, new business restrictions and mask mandates are likely leading households to pull back in some areas, economists said….”

US banks ease loan standards in battle to lend (Joe Rennison + Imani Moise, Financial Times) ($)
“…A net 25 per cent of banks loosened lending standards in both consumer loans and corporate loans to small companies over the second quarter, according to analysts at UBS, drawing in part from US Federal Reserve data. It marks a record pace of easing in credit conditions based on data going back to the turn of the millennium….S&P Global Ratings anticipate the trailing 12-month default rate for the lower-rated “speculative-grade” companies to fall to just 2.5 per cent by June 2022, from close to 4 per cent today, adding that ratings upgrades have outpaced downgrades by roughly three to one so far this year. Mish said nominal US Treasury yields, which factor in to many lending rates, are broadly correlated with default rates on riskier corporate debt, with the long-run decline in yields over recent decades corresponding to fewer companies reneging on their debts….”

‘Xi Jinping Thought’ school lessons alarm Chinese parents (Sun Yu, Financial Times) ($)
“…A campaign to make children as young as 10 study President Xi Jinping’s political philosophy has been labelled by some parents as “disgusting” and evoked memories of Mao Zedong’s personality cult. More than a dozen parents across the country told the Financial Times they were uncomfortable with the rollout next month of classes on “Xi Jinping Thought”. The eponymous philosophy, which features a mixture of patriotic education and praise for the Chinese Communist party’s general secretary, will become part of the national curriculum from primary school to university next month. “I really hate the idea of forcing children to study ideology,” said a mother of a 10-year old in eastern Jiangsu province who did not want to be identified. “But I can’t voice my concern in front of my son.” “This is disgusting,” said a father of a school-aged daughter in central Henan province who also did not want to be identified by name. He hoped his daughter would “forget about everything after she is done with the exam”….Some teachers have even instructed students to thank Xi for being able to enjoy their favourite hobbies. In a test class on Xi’s philosophy this year, a teacher at a Hangzhou-based school known for its strong football programme told student players that they had benefited from the leader’s “caring”. Zhang Jiajia, the teacher, said in a televised speech: “I made students aware that Grandpa Xi always accompanies and encourages us.”…”

Air Cargo Boom in Supply Chain Crunch Has Car Tires Flying First Class (Doug Cameron, Wall Street Journal) ($)
“…The global air cargo sector is flying planes at almost 90% of capacity as record amounts of goods crisscross the globe, bound for free-spending consumers and parts-hungry manufacturers…..Flying goods by air is the last—and priciest—option for many manufacturers and retailers to move products through a global supply chain already snarled by pandemic-driven closures of Chinese seaports and widespread labor shortages. Airfreight accounts for less than 1% of global trade by weight but more than 30% by value, according to the International Air Transport Association, a trade group. The share of global airline industry revenue for freight traffic has doubled to around 30% from pre-pandemic levels, according to IATA….”

NEW ECON RESEARCH

What explains the decline in r ∗ ? Rising income inequality versus demographic shifts (Atif Mian, Ludwig Straub, + Amir Sufi, Federal Reserve Bank of Kansas City)
“Downward pressure on the natural rate of interest (r∗ ) is often attributed to an increase in saving. This study uses microeconomic data from the SCF+ to explore the relative importance of demographic shifts versus rising income inequality on the evolution of saving behavior in the United States from 1950 to 2019. The evidence suggests that rising income inequality is the more important factor explaining the decline in r∗ . Saving rates are significantly higher for high income households within a given birth cohort relative to middle and low income households in the same birth cohort, and there has been a large rise in income shares for high income households since the 1980s. The result has been a large rise in saving by high income earners since the 1980s, which is the exact same time period during which r∗ has fallen. Differences in saving rates across the working age distribution are smaller, and there has not been a consistent monotonic shift in income toward any given age group. Both findings challenge the view that demographic shifts due to the aging of the baby boom generation explain the decline in r∗ .”

NEW SCIENCE

To Learn More Quickly, Brain Cells Break Their DNA (Jordana Cepelewicz, Quanta Magazine)
“…As an unsettling recent discovery shows, to express learning and memory genes more quickly, brain cells snap their DNA into pieces at many key points, and then rebuild their fractured genome later. The finding doesn’t just provide insights into the nature of the brain’s plasticity. It also demonstrates that DNA breakage may be a routine and important part of normal cellular processes — which has implications for how scientists think about aging and disease, and how they approach genomic events they’ve typically written off as merely bad luck. The discovery is all the more surprising because DNA double-strand breaks, in which both rails of the helical ladder get cut at the same position along the genome, are a particularly dangerous kind of genetic damage associated with cancer, neurodegeneration and aging. It’s more difficult for cells to repair double-strand breaks than other kinds of DNA damage because there isn’t an intact “template” left to guide the reattachment of the strands…”

IN OUR AIRPODS

Why high unemployment persists for Black workers (Kristen Broady + Fred Dews, The Brookings Cafeteria)